Product Tanker Orderbook: Slimming Down?

Following an extremely weak year for product tanker contracting in 2016, the product tanker orderbook has declined significantly and at the start of February 2017 was equivalent to 10.2% of fleet capacity, the lowest level in nearly 17 years. While orderbook trends have differed between vessel sizes, the shrinking orderbook is expected to lead to slower overall growth in the product tanker fleet in the coming years.

Sizing It All Up

At the start of February, the product tanker orderbook (10,000+ dwt) stood at 321 ships of 16.0m dwt. This is the lowest number of product tankers on order since 2001, following a sharp decline in the orderbook in 2016. Last year, the product tanker orderbook fell by 9.2m dwt, a drop of 35%. This has left the orderbook equivalent to just 10.2% of total product tanker fleet capacity, a low not seen since August 2000.

This is a far cry from 2007 when the orderbook was equal to more than 60% of the fleet. In the wake of the global economic crisis, 2009-12 saw subdued product tanker contracting with fewer than 100 orders placed per year. As a result the orderbook fell to 13.5m dwt by late 2012. However, this trough proved to be short-lived as market sentiment turned in 2013 and orders shot up, with 299 product tankers ordered – just 36 shy of the total over the previous four years. Following the oil price drop in 2014, better tanker market conditions supported another surge in orders in 2015 with nearly 200 orders placed. In 2016 however, the tide finally turned and a low of only 20 orders were placed, reflecting the weaker market, previously robust ordering in 2013-15 and limited availability of finance.

The Finer Measurements

Meanwhile, the composition of the product tanker orderbook has changed visibly over the last few years. In 2013, a rise in popularity of MR types (c. 40-54,999 dwt), saw 192 MR orders placed, up 109% y-o-y. By the end of 2013, MRs constituted 66% of the product tanker orderbook in dwt terms. However, MRs have only accounted for 35% of product tanker tonnage ordered since the start of 2014 as emphasis has shifted onto larger ship types. In total, 73 LR1s and 51 LR2s have been ordered since the start of 2014 and by the start of February 2017 MRs only accounted for 39% of the product tanker orderbook in dwt terms.

How Do We Grow From Here?

Overall, the heavy newbuilding investment in 2013-15 led to rapid growth in the product tanker fleet of c. 6% in both 2015 and 2016. This year, with the orderbook at the lowest level for a number of years, product tanker deliveries are expected to fall to 7.7m dwt, with fleet growth projected to ease to 4%. However, some segments of the fleet are still expected to grow rapidly, with LR2 fleet expansion projected to exceed 8%. On the basis of vessels already on order, 5.0m dwt of product tankers is expected to be delivered in 2018, taking fleet growth to just 2% next year.

So, the product tanker orderbook has slimmed down to the lowest level for years and is now more evenly balanced between the sectors. Overall, it seems that the product tanker fleet is now entering a phase of more moderate growth.